7 Tips for Buying a Townhouse in New York City
When most people consider buying residential property in New York City, their first question is whether they should purchase a unit in a co-operative (co-op) or condominium (condo).
However, many purchasers are more interested in owning one of the many historic townhouses that can still be found throughout the City.
But townhouses are relatively rare in New York City, making up less than 2% of annual residential transactions. As a result, many prospective buyers are unfamiliar with the unique considerations that apply to buying and owning one.
To help buyers interested in purchasing a townhouse in New York City, this guide lists seven tips to keep in mind.
Search Public Records to Find Legal Defects
Public records for New York City townhouses are available in several places. A quick online search can reveal potential problems affecting the building.
The first stop for a potential buyer should be the Department of Buildings (DOB). The DOB keeps records of construction permits, code and zoning violations, and Certificates of Occupancy for each building in the City. These records are available online and are relatively easy to navigate.
The buyer should look carefully for any open permits or violations and make sure that any existing violations are remediated by the seller. In the alternative, the buyer may opt to deal with the violations him- or herself.
The DOB will also provide information on the zoning and legal use of the property. This is especially important if the property is a multi-family building. Many of these properties are converted from single-family homes, and occasionally the legal use has not been updated. This can cause problems when seeking to finance or insure the property.
Another source to consult for evidence of violations is the Department of Housing Preservation and Development (HPD). The HPD is responsible for enforcing resident complaints and housing quality issues. HPD violations can be issued for accessibility problems, code violations, unsafe conditions, mold, lead paint, and pests. These items can be expensive to remediate, and the buyer should ensure that the seller does so prior to closing.
A thorough search of public records should also include an inquiry into court records for any existing liens or judgments and an examination of property tax rolls to reveal any delinquencies.
Calculate Immediate and Ongoing Expenses
Prior to buying a townhouse, a buyer must understand the costs involved in owning one. While the buyer will not be responsible for monthly condo or co-op fees, he or she will be solely responsible for expensive repair items, such as the boiler or HVAC.
The buyer should research the age and condition of appliances, HVAC, and the roof to determine if repair or maintenance costs are imminent. Utilities, property taxes, and other expenses can be estimated by speaking to the local utility company and looking at public records.
Further, if the townhouse is a multi-family building, there may be additional maintenance and collections expenses (debt collection, evictions, etc.) associated with the property.
A wise buyer will have a complete understanding of all expenditures associated with owning the townhouse before the end of the due diligence period.
Research Lenders and Obtain Financing
Financing is another key factor when purchasing a townhouse. There are many things that can affect the buyer’s ability to finance the purchase. For example, DOB or HPD violations (addressed earlier in this article) can cause a lender to disapprove financing. Items like the age of the roof, pending judgments, and any liens on the property can also be roadblocks for a lending decision.
Once approved for financing, the buyer should understand how the terms of the loan will affect his or her bottom line. Interest rates, amortization terms, and equity requirements will all affect the monthly payment and the amount of cash required to close. The buyer should also understand the lender’s insurance requirements.
The buyer should hire a New York City real estate attorney to review the terms of the financing. In addition, the buyer should work with more than one lender to secure the best financing package available.
Purchase the Right Kind and Amount of Insurance
Most lenders will require that the prospective buyer purchase a homeowners insurance policy. Most policies will cover the property for damages caused by weather, fire, vandalism, or theft.
However, not all policies are created equal, so the buyer must carefully review the available options and make sure the coverage will work for the building. For example, if the building has a history of flooding, the insurance policy should cover flood damage.
The insurance policy should also have enough coverage to completely rebuild, if necessary. The buyer should consult with a professional to determine what this amount will be. Additionally, many policies offer an “extended replacement cost” option, which allows an additional buffer of 20-80% more than the calculated replacement cost.
Some policies will even offer a “guaranteed replacement cost,” which will ensure that in the event of rebuilding the property, the insurance policy will cover the cost to rebuild and restore the home to the original specifications and level of finish.
These options are considerably more expensive than a standard homeowners policy, but they are invaluable in the event that the building is damaged or destroyed.
Other considerations are the levels of coverage for personal property, building ordinances, and general liability.
If the building being purchased is a multi-family property, the buyer will likely need additional liability insurance and a good umbrella policy. For first-time landlords, a knowledgeable NYC real estate attorney will be invaluable in this process.
Have a Plan for Tenants, Leases, and Rent Regulation
Many townhouses are multi-family buildings that are split into 2-4 units. This setup is attractive to many buyers due to the additional income that can be generated by renting the other units to tenants. But this extra income brings additional considerations.
Examining existing leases will help the buyer understand his or her future obligations to the tenants. These responsibilities can include items like appliance repairs and maintenance.
The buyer should also be aware of any rent regulation that is imposed on the rental units. If there are existing tenants in a rent-controlled unit, the buyer should expect that those tenants will remain there indefinitely at the rent-controlled rate. These rents are below market rates and should be taken into consideration when investigating the property’s potential for income.
Investigate the Neighborhood
The townhouse’s location is another important consideration for the buyer. He or she should research the area for information about such things as safety, restrictions, and the condition of the surrounding properties. These factors will all affect the current and future value of the property.
Some neighborhoods have been given a landmark designation. This designation, intended to protect the integrity of historic districts, places restrictions on facade improvements and alterations. When the owner or buyer of a landmark property wants to make any changes to the exterior of that property, he or she will have to submit a proposal to the Landmarks Preservation Commission. This can be a lengthy process and should be accounted for during the due diligence period.
The buyer should enlist the help of a knowledgeable real estate broker that can provide insight on other properties in the neighborhood. Comparing local sales prices will help to ensure that the buyer is purchasing the townhouse at a cost that is in line with the rest of the neighborhood.
Other neighborhood factors to consider are proposed developments for the area, convenient access to amenities (groceries, laundry, banking, etc.), and proximity to the buyer’s workplace.
Hire Professionals to Survey and Inspect the Property
Surveying and inspecting the townhouse is an essential part of any purchase. The buyer should hire an inspector that has a good reputation and specific knowledge of townhouses.
Unlike a co-op or condo, where the corporation or association uses pooled funds from the owners for significant expenses and maintenance, the owner of a townhouse is solely responsible for these costs. This means that a thorough inspection is critical to revealing potential maintenance issues.
Because many New York City townhouses are historical buildings, the inspection should include a structural review by a qualified engineer. This review should include the foundation, facade, and structural walls. Structural issues can be costly to remediate and may jeopardize the buyer’s ability to finance or insure the building.
A survey is often required by the lender and will reveal any encroachments or potential title issues before closing. Even in an all-cash transaction, surveying the property is a good idea. Besides giving the buyer a better idea of what is being purchased , encroachments and title issues can affect a future sale of the property. Once the deal is closed, the buyer will be responsible for such problems.
A surveyor that specializes in townhouse surveys will confirm whether common walls between neighboring buildings qualify as “party walls.” A party wall is a wall that has been built between two adjoining buildings and is used by both. The party wall often serves as a structural wall for both buildings, and the use of this wall is governed by a “party wall agreement”.
The party wall agreement defines each owner’s ability to make alterations or additions to the wall or to utilize the wall for signage or other displays. In the event that the wall needs maintenance or repair, the agreement also details the responsibilities of the owners to maintain it.
A thorough survey and inspection will examine the party wall carefully to ensure it is structurally sound and there are no maintenance issues. Additionally, it is wise to have an attorney review the party wall agreement to assist the buyer in understanding his or her rights and obligations concerning the wall.
A New York City townhouse can be an excellent investment and a great way to own a piece of New York’s proud history. By keeping these seven tips in mind and working closely with a New York City real estate attorney and other professionals, a buyer can help ensure that the process of purchasing and owning his or her ideal home proceeds smoothly and with minimal risk.
This article is provided for your convenience and does not constitute legal advice. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome.